Secondary insolvency proceedings under EU Regulation No. 848/2015 play a crucial role in protecting local creditors when foreign companies operate in Romania through branches. However, recent Romanian case law highlights that procedural inaccuracies frequently lead to the dismissal of such applications as inadmissible.
Secondary insolvency proceedings in Romania: Current legal challenges in the application of Regulation (EU) No. 848/2015 for foreign companies with a branch in Romania
Cross-border insolvency and secondary proceedings: The European legal framework and conditions of admissibility in Romania
Dr. Radu Pavel, Managing Partner of Pavel, Mărgărit and Associates Romanian Law Firm, emphasizes that the application of secondary insolvency proceedings in Romania under Regulation (EU) No. 848/2015 raises significant legal challenges for creditors of foreign companies operating through branches, particularly with regard to legal capacity and the correct interpretation of the concept of “establishment.” According to him, recent Romanian case law shows that the absence of a well-structured procedural strategy—focused on correctly summoning the parent company and complying with cross-border judicial cooperation mechanisms—frequently leads to the dismissal of applications as inadmissible. Although the European legal framework enshrines the protection of local interests through secondary proceedings, its effective use depends on the proper alignment of EU law with national legislation and on the use of appropriate legal tools, such as notifying the foreign insolvency practitioner, requesting interim protective measures, and relying on relevant case law. A carefully substantiated legal approach is therefore essential to safeguard assets located in Romania, reduce procedural risks, and ensure the effective recovery of creditors’ claims.
The constant evolution of international trade and the dynamics of financial markets require rigorous cooperation between judicial authorities in order to protect commercial relations, the legal framework being essentially defined by Regulation (EU) No. 848/2015 on insolvency proceedings. This European regulation operates in conjunction with national legislation, namely Law No. 85/2014 on insolvency prevention and insolvency proceedings, as well as Law No. 31/1990 on companies, in order to establish the conditions under which a local branch of a foreign entity may be subject to collective proceedings. The major challenge lies in the correct determination of the concept of establishment and in managing the conflict between the universal application of the law of the state of origin and the protection of local assets, in a context in which branches do not enjoy separate legal personality. This article analyses the current challenges related to applications for the opening of secondary insolvency proceedings, the interpretation of the notion of establishment, the impact of the case law of the High Court of Cassation and Justice, and the optimal procedural strategy for protecting the rights of the creditor.
Secondary insolvency proceedings for foreign companies with a branch in Romania: Conditions and the notion of “establishment” under Regulation 848/2015
A relevant example in this context is an insolvency or restructuring proceeding concerning a company incorporated in another EU Member State (where its centre of main interests – COMI – is located), but which operates in Romania through a branch (where it has an establishment). When resolving an application for the opening of secondary proceedings, the Romanian syndic judge must verify whether the action initiated before the foreign court constitutes a main insolvency proceeding within the meaning of Regulation (EU) 2015/848, this being an essential condition for allowing the initiation of territorial proceedings in Romania pursuant to Article 3(2) of the same regulation.
The court’s assessment must also focus on demonstrating the existence of an establishment on Romanian territory, within the meaning of Article 2(10) of the Regulation. Thus, local creditors or the debtor’s representatives must prove that the business location in Bucharest represents a stable place of operations where non-transitory economic activity is carried out with human resources and assets or services. Meeting these technical criteria is fundamental for recognising the jurisdiction of Romanian courts to manage secondary proceedings and for ensuring the legal protection of assets located in Romania.
The provisions of the Regulation concerning the right of a creditor to request the opening of secondary proceedings are primarily aimed at offsetting the effects of the universal application of the law of the Member State in which the main proceedings are opened, allowing, under certain conditions, the opening of secondary proceedings in order to protect local interests as well. The concept of “establishment” should be interpreted as including the place where the debtor company’s operations are carried out in the Member State where it has a branch; otherwise, the interests of creditors established in that Member State would not benefit from the protection provided by the Regulation through the opening of secondary proceedings. Moreover, when adopting national provisions governing the conditions for opening secondary proceedings, Member States are required, according to the consistent case law of the Court of Justice of the European Union, to ensure that the effectiveness of the Regulation, in light of its objectives, is fully achieved.
Why Romanian creditors request secondary insolvency proceedings and why applications are rejected in practice
The opening of secondary or territorial insolvency proceedings in Romania provides local creditors with an important mechanism for protecting their claims, allowing the single company to be summoned through its branch to answer with the assets and rights located on national territory. Under Regulation 848/2015, such proceedings facilitate the application of immediate preservation measures, such as prohibiting the relocation or disposal of assets located in the state where the secondary establishment exists, thus ensuring the integrity of the insolvency estate for the benefit of Romanian entrepreneurs.
At the same time, a major advantage of initiating such proceedings is cross-border judicial cooperation, which enables reciprocal exchange of information between the main and secondary proceedings. Creditors can thus benefit from transparency in the process of filing and verifying claims and can more easily identify the assets of the parent company available locally. These legal instruments are designed to protect the rights of domestic creditors, providing effective levers of control over the foreign debtor’s assets under Romanian jurisdiction.
Recent Romanian case law shows that applications filed by Romanian creditors for the opening of secondary insolvency proceedings against a company with its main registered office in another EU Member State and a branch or agency registered in Romania are often rejected as being filed against an entity lacking legal capacity.
The courts emphasise that the direct applicability of Regulation (EU) No. 848/2015 on insolvency proceedings is possible only under the conditions of Article 3(2), establishing that the application for opening insolvency proceedings in Romania must be filed exclusively against the parent company, as the holder of the assets located on the territory of the Member State. Since the branch is considered a subdivision without legal personality and without its own assets, judges hold that the state of insolvency is assessed solely by reference to the main entity, the recognition of the main proceedings opened in another Member State being automatic and unconditional, regardless of prior publication with the Trade Register. Although there are decisions suggesting that a branch could be liable for obligations undertaken in its own name, the prevailing judicial practice confirms that the lack of legal capacity of the branch leads to the dismissal of incorrectly directed applications, requiring a rigorous procedural strategy for the proper summons of the parent company through its legal representatives.
Rejection of applications for opening secondary insolvency proceedings: Analysis of recent judicial practice
It should be noted, first of all, that the distinction between “parent company” and an entity without legal capacity in the case of a single company with its main office in an EU Member State and branches or agencies registered in Romania contradicts the reasoning contained in Decision No. 6 of 15 May 2023 of the High Court of Cassation and Justice, delivered in a recourse in the interest of the law. Through this decision, it was established, in the interpretation and uniform application of Article 651(1) of the Romanian Civil Procedure Code, that where the enforceable title concerns a subdivision without legal personality, territorial jurisdiction of the enforcement court may be determined by reference to the secondary establishment of the debtor legal entity, namely the registered office of that subdivision.
The Supreme Court held that, in situations where the enforceable title targets a subdivision without legal personality, territorial jurisdiction of the enforcement court may be established by reference to the secondary establishment of the debtor. Under Article 227(2) of the Civil Code, branches and working points represent secondary establishments that confer territorial affiliation to the legal person, being attributes of identification evidenced through public registers. Consequently, whenever such structures appear in the enforceable title as holders of the obligations to be performed, the competent enforcement court may be the court within whose jurisdiction the subdivision’s establishment is located, as it legally corresponds to the notion of the debtor’s registered office, thus ensuring a correct application of Article 651(1) of the Civil Procedure Code.
Insolvency proceedings as collective enforcement: The relevance of High Court Decision No. 6/2023 for secondary insolvency proceedings
Insolvency is defined as a special form of collective enforcement proceedings, which makes the decisions of the Supreme Court extremely relevant for clarifying the conditions for opening secondary proceedings in the case of Romanian branches. In a context where national case law remains marked by contradictory interpretations, it is important to recognise that only the single company has the capacity to hold rights and obligations in its own name. Consequently, any legal relationship attributed to a branch arises, in reality, directly within the patrimony of the parent company, regardless of the location of its secondary establishments in various EU Member States.
The branch is not an independent entity, but rather a means of extension of the founding enterprise, created for the purpose of facilitating foreign capital investments and carrying out its own economic activity. It is established through the will and funds of the parent company, which allocates the resources necessary for its organisation and operation. From this perspective, the branch serves as a territorial instrument through which the parent company fulfils its commercial objectives, thereby justifying the unitary application of insolvency rules to the entire patrimony of the single legal entity.
How to avoid the exception of lack of legal capacity: Procedural strategy for opening secondary insolvency proceedings in Romania
To avoid the dismissal of an application for opening secondary insolvency proceedings on the grounds of the branch’s lack of legal capacity, the lawyers of the Romanian Law Firm Pavel, Mărgărit and Associates recommend filing the action directly against the parent company in the EU Member State where its centre of main interests (COMI) is located. It is essential that service of process be carried out both at the debtor’s main registered office, through the practitioners appointed in the main proceedings (if already initiated), and at the branch’s registered office in Romania. In this respect, the syndic judge is requested to apply Article 38(1) of Regulation 848/2015, which requires the court to immediately notify the foreign practitioner or the debtor in possession, granting them the legal opportunity to be heard regarding the filed application.
Additionally, for enhanced protection of the insolvency estate, creditors may request the Romanian court, by way of a presidential injunction, to order urgent preservation measures pursuant to Article 38(3) of the Regulation, in conjunction with Article 70 of Law No. 85/2014. These steps aim at blocking any attempts to relocate or dispose of the debtor’s assets located in Romania, as well as suspending operations involving the transfer of assets or patrimonial rights. By applying such measures under sanction of nullity, the preservation of local assets and the protection of Romanian creditors’ interests are ensured until the final resolution of the application for opening insolvency proceedings.
“These new procedural measures regarding the correct service of process on the parent company must be handled with care in order to avoid the dismissal of applications for opening secondary insolvency proceedings due to the lack of legal capacity of the branch.” stated Dr. Radu Pavel, Managing Partener of the Romanian Law Firm Pavel Mărgărit and Associates.
“Clarifying the legal status of the branch and correctly using the notification mechanisms provided by Regulation (EU) No. 848/2015 are mandatory to overcome procedural barriers related to legal capacity and to ensure that local creditors gain access to the debtor’s assets located in Romania.” stated Dr. Nicoleta Mirela Năstasie, Senior Lawyer and insolvency practitioner at the Romanian Law Firm Pavel Mărgărit and Associates
In conclusion, insolvency proceedings in Romania concerning foreign companies with secondary establishments represent a complex legal mechanism requiring careful harmonisation between Regulation (EU) 848/2015 and national legislation in order to overcome obstacles related to the legal capacity of branches. The success of an application for opening secondary proceedings depends on a rigorous procedural strategy that includes the correct summons of the parent company and the request for preservation measures over local assets.
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